Millions of savers face pension shock in Budget
Upcoming pension tax changes could reduce millions of people’s retirement savings by tens of thousands of pounds.
The present plan is to cut the LTA from £1.25million to £1million from the 2016-17 tax year, and index-link it to inflation from 2018-19, but this could be revised as part of any wider shake-up.
A pension pot of £1million sounds like a lot to most people, but it is very possible that many people in their 20s and 30s now might eventually hit it. A £1million pot will also only secure an income of about £27,000 a year for someone with a defined contribution pension.
Darren Laverty, Partner at Secondsight, says ‘Taking into account an annual growth rate of 5 per cent, any individual with a fund currently worth £358,000 with 20 years to go until retirement is likely to hit the £1million ceiling. Similarly, someone retiring in 15 years with a pension pot today of £463,000 could also be affected.’
Laverty also warns most ‘death in service’ benefits paid out by employers will count toward the lifetime allowance, a factor which could unexpectedly leave a bereaved family with a much lower sum once the tax is taken.
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